Recovery visions rise with indicators

But big trade gap casts a shadow

WASHINGTON — The latest round of data Wednesday provided something of an economic Rorschach test--giving optimists new cause to be hopeful, and pessimists reasons to be cautious.

The Conference Board reported that its index of leading indicators, a key forecasting gauge for the U.S. economy, rose for a second straight month in November, fueling hopes of a meaningful recovery in the first half of next year.

But even that gain was far from unambiguous, and optimism was further tempered by a government report showing that the nation's trade deficit--returning to more normal patterns after the disruptions caused by the terrorist attacks--soared to $29.4 billion in October, the biggest monthly jump in more than eight years.

The index of leading economic indicators rose 0.5 percent, to 109.7, in November--the largest rise since a 0.6 percent increase in May--after a 0.1 percent gain the previous month. The index operates from a 1996 base of 100.

The November rise exceeded most expectations, and the index has risen in four of the past six months, which suggests that "the recession could be losing steam," the Conference Board said in a statement. It said if monthly gains continue to be seen in the index, "an economic recovery in the first half of next year may be possible."

David Littmann, chief economist with Comerica Bank in Detroit, said the data pointed to a resumption in growth for an economy that has been in recession since March.

"Recession is a zero probability over the course of 2002," he said, adding he expects the economy to show a "progressive acceleration in the quarters ahead," beginning in the final quarter of this year.

But Conference Board economist Michael Fort warned about reading too much into one report, saying the readings in future months will be crucial to determining if a recovery is indeed in the offing.

"Despite the gains in the last two months, more declines may be in store in the near future as the recession continues its course," he said.

"If the economy is poised for recovery as early as spring 2002, the current improvement in the [index] will likely be sustained after New Year's."

Six of the 10 components that make up the leading indicators index were positive in November, led by initial jobless claims, the interest rate spread and stock prices.

Anthony Chan, chief economist with Banc One Investment Advisers in Columbus, Ohio, expressed concern about an almost-even split between the positive and negative components.

"Until we see [improvement] more broadly based in this index, I'm not going to feel the economy is out of recession," he said.

"We need to see this index rising for a few more months to really define a positive trend in this economy," Chan added, saying it was "a bit early to pop off the cork from the champagne bottle."

Meanwhile, the jump in the October trade deficit surprised analysts, who had expected it to climb to $27.4 billion. The gap was nearly 55 percent higher than a revised deficit of $19 billion in September, which had been the smallest deficit in more than two years.

"You have a somewhat wider-than-anticipated trade gap, but this said, essentially it went back to where the trend should have been now that the insurance payment quirk is out of the data," said Kathleen Stephansen, senior international economist with Credit Suisse First Boston in New York.

Payments foreign insurance companies will make on damage claims from the Sept. 11 terrorist attacks reduced the September trade deficit by $11 billion, but because they were treated as if they were paid in a single month, the October deficit rebounded sharply.

So far this year, the trade deficit is running at an annual rate slightly below the record $375.7 billion set last year.

"That's a function of this business cycle where everyone, the U.S. and the global economies, seem to be slowing down quite abruptly," said Carey Leahey, senior U.S. economist with Deutsche Bank Securities in New York.